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Morning report

Will tighten lending practices


29-Sep-2011
The Financial Supervisory Authority of Norway yesterday released a proposal for tightening of lending standards for house mortgages. With such measures the central bank may become less worried about the increasing debt burden among households and its effect on financial stability and to a larger extent be able to concentrate on its goal of low and stable inflation.

NOK & 3m NIBOR


8.00 7.80 7.60 7.40 19-Aug 8-Sep 3m ra. 3.20 3.10 3.00 2.90 28-Sep EURNOK

SEK & 3m STIBOR


9.5 9.3 9.1 8.9 8.7 19-Aug 8-Sep 2.50 2.45 28-Sep EURSEK 2.60 2.55

In the aftermath of the financial crisis, the Norwegian interest rate level has been very low as a response to an inflation level well below the central bank's target. The idea has been that low interest rates should stimulate growth in the Norwegian economy and through this pull inflation up. The danger with such a low interest rate level is that it may cause house prices to rise too much, which again may pull household's debt up to a level which is not sustainable in the long run. This is something which clearly has concerned Norges Bank and it has been used as an argument for higher interest rates. However lately, weakening global demand and turmoil in the financial markets have made the interest rate setting more challenging. As a result the central bank has left its key policy rate unchanged at the last two meetings, at 2.25 per cent, and indicated that the interest rate will remain at this level at least over New years. The worries regarding credit growth are however still very much present. Yesterday the Financial Supervisory Authority of Norway (FSAN) released a proposal of measures to tighten lending standards for house mortgages. Such measures may make Norges Banks monetary policy decisions easier. Norwegian house prices have risen markedly over the past two years and are now at record highs. In a new report on financial developments, the FSAN writes that high growth in house prices and household's debt level may pose a risk for financial stability. Household's debt levels are at record highs and Norges Banks forecasts indicate that it will continue to increase. An increasing share of household's now has a debt level which makes them vulnerable for increasing interest rates, a shortfall of income or house price declines. (In 2008 28 per cent of Norwegian households had a total debt which was more than three times their income) As a result of the development, the FSAN now consider to tighten the guidelines for reasonable lending practices for housing mortgages. The FSAN wants to lower the level for a reasonable debt to asset ratio from 90 to 85 per cent. If lending is to exceed 85 per cent of the market value, a special reliability assessment should be made or some extra collateral has to be in place. The FSAN also say the banks should demands principal to be paid from the first term on all mortgages that are above 70 per cent of market value. Furthermore the FSAN want the bank to take account for interest rates to go up by 5 percentage points when they consider their clients debt service ability. The FSAN says that with such measures there will be a somewhat larger security margin against an economic setback. Lastly the FSAN has written a letter to the Finance Ministry where they propose to establish a legal authority to regulate the bank's lending practices. Such regulations should only take place in situations with large risk of financial instability. Without such measures as the FSAN proposes, we may come in a situation where Norges bank has to hike rates sooner than they otherwise would have done, to secure financial stability. With such measures, the central bank will be given a helping hand and can to a larger extent concentrate on their goal of low and stable inflation. As mentioned, low interest rates have caused house prices in Norway to rise. Consumption has however been relatively poor so far in 2011. In July retail sales dropped, probably as a response to increased market turmoil and the terrorist attacks on July 22nd. Today consumption figures for August are released. We expect retail sales to have grown by 0.5 per cent m/m. Internationally a lot of attention is expected to be given the German vote on the European rescue deal from July. In general, the European debt crisis and fear of a global recession is still expected to drive market developments. Yesterday these factors caused commodity prices to drop and stock markets to decline. However the yield on long dates German and US governments increased slightly and the euro has strengthened over the past 24 hours. camilla.viland@dnbnor.no Yesterday's key economic events (GMT) 07:15 Sweden Consumer confidence 12:30 US Orders, excl transports Todays key economic events (GMT) 08:00 Norway Retail sales 12:30 US Intitial claims 14:00 US Pending home sales As of Sep Aug As of Aug W38 Aug Unit Index m/m % Unit % 1000 % Prior 4.3 0.8 Prior -0.9 423 -1.3 Poll Actual 1.4 -5.8 0.2 -0.1 Poll DnB NOR 0.7 0.5 420 -3.0

3m ra.
Headquarters 0021 Oslo Stranden 21 Offices Abroad New York London Shanghai Singapore Stockholm Sales Oslo (+47) Equity Fixed Income FX/IR Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund +47 03000

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850 22 94 89 40 22 01 78 20 22 01 76 50 55 75 69 61 52 61 38 22 51 77 73 33 73 21 55 39 05 72 27 07 01 84 62 58 37 84 95 87 41 14 09 32 28 76 04 96 74 13 60 80 60 50 69 06 27 62 50 30 80 89 00 09

Research Regional Sales (+47) Eirik Larsen 22 01 76 55 Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Maren Romstad Camilla Viland Kyrre Aamdal Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen 22 22 22 22 22 22 22 22 22 22 22 22 22 01 01 01 01 01 01 01 01 01 01 01 01 01 76 78 78 76 76 77 76 78 77 76 76 77 78 56 03 24 63 64 41 67 37 62 93 77 36 15

29-Sep-2011

Morning report

Oil spot & NOK TWI


130 110 90 70 19-Aug 100 98 96 94 28-Sep $/b

SPOT RATES AND FORECASTS (Source: Reuters and DnB NOR Markets)
FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK Prior 76.59 1.354 0.870 1.219 7.857 9.227 7.443 5.802 7.586 0.852 9.037 6.811 8.911 1.175 10.596 Last 76.55 1.361 0.871 1.221 7.849 9.237 7.443 5.773 7.542 0.851 9.019 6.788 8.872 1.176 10.606 % -0.1% 0.5% 0.2% 0.2% -0.1% 0.1% 0.0% -0.5% -0.6% -0.2% -0.2% -0.3% -0.4% 0.2% 0.1% In 1 m ...3 m 80 80 1.35 1.35 0.86 0.86 1.20 1.20 8.00 7.80 9.30 9.10 7.45 7.45 5.93 5.78 7.41 7.22 0.86 0.86 9.3 9.1 6.89 6.74 5.51 5.39 1.16 1.17 10.81 10.58 ...6 m ...12 m 80 90 1.30 1.25 0.84 0.82 1.20 1.25 7.70 7.70 9.00 9.00 7.45 7.45 5.92 6.16 7.40 6.84 0.86 0.86 9.2 9.4 6.92 7.20 5.54 6.48 1.17 1.17 10.71 10.98 FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB USD 0.9792 1.0327 0.8976 18.02 5.4711 1.5624 7.7950 117.98 0.2767 2.5386 0.5219 0.7785 3.2633 1.2971 31.9550 % 0.13% -0.07% -0.29% -0.75% -0.46% 0.29% 0.01% -0.42% -0.14% -0.46% -0.46% 0.22% -0.70% -0.02% 0.45%

8-Sep

NOK TWI ra.

EUR vs GBP & CHF


1.25 1.20 1.15 1.10 1.05 19-Aug 8-Sep GBP r.a 0.89 0.87 0.85 0.83 0.81 28-Sep CHF

Gov. Bonds, 10y


2.25 2.00 1.75 1.50 19-Aug 3.00 2.50 2.00 1.50 28-Sep SEK

8-Sep

NOK, ra.

1m 3m 6m 12m 3y 5y 7y 10y

JPY and DowJones


14 12 10 8 19-Aug 8-Sep USDJPY ra. DowJones, 1000 78 77 76 75 28-Sep

10y 10y yield vs bund

SWAP AND MONEYMARKET RATES (Source: Reuters) NIBOR STIBOR EURIBOR USD LIBOR Prior Last Prior Last Prior Last Prior Last 2.83 2.73 2.32 2.32 1.29 1.30 0.24 0.24 3.09 2.99 2.51 2.51 1.49 1.49 0.37 0.37 3.31 3.28 2.53 2.53 1.70 1.70 0.54 0.55 3.41 3.40 2.58 2.58 1.86 1.86 0.69 0.69 2.91 2.91 2.06 2.05 1.63 1.66 0.70 0.72 3.22 3.23 2.32 2.33 2.01 2.05 1.22 1.26 3.46 3.47 2.53 2.52 2.33 2.35 1.70 1.72 3.66 3.69 2.65 2.62 2.61 2.62 2.14 2.16 GOVERNMENT BONDS (Source: Reuters) US NORWAY SWEDEN GERMANY Prior Last Prior Last Prior Last Prior Last 115.55 111.20 115.627 115.63 102.298 102.27 101.23438 101.19 2.42 2.43 1.87 1.87 1.99 2.00 1.99 2.00 0.43 0.44 -0.12 -0.13 0.00 0.01 INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY US 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 3.05 4.25 2.50 3.00 1.50 3.00 3.20 4.50 2.75 3.25 1.50 3.25 3.50 4.50 2.90 3.25 1.50 3.25 3m libor 10y swap 0.35 3.00 0.35 3.25 0.35 3.25

USD and gold


2000 1900 1800 1700 1600 1500 19-Aug 8-Sep EURUSD ra. 1.49 1.44 1.39 1.34 28-Sep Gold

In 3m 6m 12m

EURSEK & OMXS


9.4 9.2 9.0 8.8 19-Aug 8-Sep OMXS ra. 450 430 410 390 370 350 28-Sep EURSEK

FRA NOK DEC MAR JUN SEP FRA SEK DEC MAR JUN SEP

3m 2.70 2.42 2.39 2.39 3m 2.11 1.81 1.78 1.78

Prior 2.70 2.43 2.38 2.38 Prior 2.11 1.81 1.78 1.75

chg 0.00 -0.01 0.01 0.01 chg 0.00 0.01 0.00 0.03

TWI Today NOK 98.20 SEK 121.80 EUR 106.46 USD 77.78 GBP 79.30 Comm. Today Brent spot 110.8 Brent 1m 103.7 Spot gold 1643.0

% - 0.12 0.16 0.35 - 0.40 - 0.13 Last 110.8 103.8 1643.0

Stock ex. Today Dow Jones 11,010.9 Nasdaq 2,491.6 FTSE100 5,217.6 Eurostoxx50 2,176.6 Dax 5,578.4 Nikkei225 8,701.2 Oslo 347.67 Stockholm 413.39 Copenhagen 457.14

% -1.6% -2.2% -1.4% -0.8% -0.9% 0.0% -1.1% -2.2% -1.2%

Morning report
29-Sep-2011
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